The chips are down: Frito-Lay stops shipments to Loblaw stores over price-increase dispute - The Globe and Mail | Canada News Media
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The chips are down: Frito-Lay stops shipments to Loblaw stores over price-increase dispute – The Globe and Mail

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A standoff has emerged between Canada’s largest grocer and one of the world’s largest packaged-goods companies, over the price of potato chips.

But the dispute – which has led PepsiCo-owned potato-chip manufacturer Frito-Lay to cut off shipments to stores owned by Loblaw Cos. Ltd. L-T – goes beyond the snack aisle. Product suppliers and retailers have been in more intense negotiations in recent months, as inflationary pressures have led suppliers to hike prices for the products that stock the shelves.

La Presse first reported last week that Frito-Lay had stopped shipments to Loblaw. The chief executive officer of industry group Food, Health & Consumer Products of Canada (FHCP) confirmed the cut-off in an interview on Tuesday, and said the retailer had refused a price increase of less than 10 per cent. Frito-Lay manufactures brands that include Lay’s, Doritos, Miss Vickie’s and Tostitos.

Spokespeople for Loblaw and PepsiCo Foods Canada declined to comment specifically on the matter, although PepsiCo did confirm it has requested price hikes for its products, citing “unprecedented pressures” as costs rise for ingredients, packaging and shipping.

“To help offset these pressures on our Canadian operations and to ensure that we maintain the high quality our consumers expect, we have made adjustments to our prices that are consistent across the marketplace,” PepsiCo spokesperson Sheri Morgan wrote in an e-mail. “We are committed to our Canadian manufacturing and operations and our products remain widely available from coast to coast.”

Grocery prices rose by 6.5 per cent in January compared with the same time last year, Statistics Canada reported last week, an acceleration from the 5.7-per-cent increase reported for December.

Minimizing price hikes for shoppers has become more difficult as cost pressures intensify, Loblaw spokesperson Catherine Thomas wrote in an e-mail.

“When suppliers request higher costs, we do a detailed review to ensure they are appropriate,” Ms. Thomas wrote. “This can lead to difficult conversations and, in extreme cases, suppliers don’t ship us products.”

A manufacturer cutting off shipments to a retailer used to be relatively rare, but such instances have become more frequent in recent months, FHCP CEO Michael Graydon said. Such disputes are usually resolved behind closed doors. What is unusual here, he said, is the size of the players involved and the fact that the dispute has become public.

“Everybody is in discussion because everybody’s impacted across every category in the store – from plastic bags, to potato chips, to cereal, to shampoo,” Mr. Graydon said. “Because of the magnitude of asks – there’s just so many of them – [retailers] are starting to push back. … [Suppliers] are just not going to put their businesses in economic jeopardy by not getting the price increases that are necessary to recoup costs.”

Late last year, executives at Loblaw, Metro Inc. and Sobeys owner Empire Co. Ltd. all confirmed product suppliers began seeking price increases in the summer, responding to those pressures. In a conference call to discuss Loblaw’s earnings in November, chairman and president Galen G. Weston said the company had refused supplier increases that he called “unjustified” or “detrimental to the customer experience,” as teams worked to minimize price hikes on store shelves.

“There’s an enormous amount of concern because several of those increases were way beyond what you would be able to justify because of food inflation and additional costs,” said Diane Brisebois, president and CEO of industry group the Retail Council of Canada, adding that Canadian shoppers are price-sensitive, especially right now. “Grocers are the ones who look customers in the eyes when they price their products.”

Disputes over price negotiations are nothing new in the grocery industry. In 2020, for example, complaints were lobbed in the opposite direction when a number of grocers notified product suppliers about hikes in fees the retailers charge for things such as shelf placement and in-store promotions. Continuing tensions between grocers and suppliers have motivated discussions around a code of conduct for the industry.

But Mr. Graydon, who is part of an industry group that supports such a code, emphasized while the proposed code would include a dispute-resolution process, it would not eliminate such conflicts over price negotiations entirely. He pointed out that retailers and vendors in other markets that do have a code, such as in Britain, have seen an increase in disputes as inflationary pressures mount.

Complicating this dynamic, is the fact that many grocers have invested heavily in producing private-label brands that compete with suppliers. In Loblaw stores this week, the dispute has led to some empty shelves, which the retailer is partly filling with its own house brand chips, said Sylvain Charlebois, a professor of food policy and distribution at Dalhousie University in Halifax.

He says he believes there are more battles to come.

“Inflation is putting way more pressure on that dynamic between grocers and processors,” Prof. Charlebois said. “There’s a lot of tension right now.”

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TMX Group Ltd. earns $82.7 million in third quarter, revenue rises 23 per cent

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TORONTO – TMX Group Ltd. says it earned $82.7 million in its third quarter, slightly down from $85.3 million a year earlier.

Revenue for the company that operates the Toronto Stock Exchange totalled $353.8 million.

That’s up 23 per cent from $287.3 million during the same quarter last year.

Diluted earnings per share were 30 cents, down from 31 cents a year earlier.

CEO John McKenzie says the company has delivered three consecutive quarters of organic revenue growth.

He says positive momentum in high-growth areas of the business coupled with strong performance in more traditional markets were partially offset by challenging capital-raising conditions.

This report by The Canadian Press was first published Oct. 30, 2024.

Companies in this story: (TSX:X)

The Canadian Press. All rights reserved.

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Natural gas producers await LNG Canada’s start, but will it be the fix for prices?

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CALGARY – Natural gas producers in Western Canada have white-knuckled it through months of depressed prices, with the expectation that their fortunes will improve when LNG Canada comes online in the middle of next year.

But the supply glut plaguing the industry this fall is so large that not everyone is convinced the massive facility’s impact on pricing will be as dramatic or sustained as once hoped.

As the colder temperatures set in and Canadians turn on their furnaces, natural gas producers in Alberta and B.C. are finally starting to see some improvement after months of low prices that prompted some companies to delay their growth plans or shut in production altogether.

“We’ve pretty much been as low as you can go on natural gas prices. There were days when (the Alberta natural gas benchmark AECO price) was essentially pennies,” said Jason Feit, an advisor at Enverus Intelligence Research, in an interview.

“As a producer, it would not be economic to have produced that gas . . . It’s been pretty worthless.”

In the past week, AECO spot prices have hovered between $1.20 and $1.60 per gigajoule, a significant improvement over last month’s bottom-barrel prices but still well below the 2023 average price of $2.74 per gigajoule, according to Alberta Energy Regulator figures.

The bearish prices have come due to a combination of increased production levels — up about six per cent year-over-year so far in 2024 —as well as last year’s mild winter, which resulted in less natural gas consumption for heating purposes. There is now an oversupply of natural gas in Western Canada, so much so that natural gas storage capacity in Alberta is essentially full.

Mike Belenkie, CEO of Calgary-headquartered natural gas producer Advantage Energy Ltd., said companies have been ramping up production in spite of the poor prices in order to get ahead of the opening of LNG Canada. The massive Shell-led project nearing completion near Kitimat, B.C. will be Canada’s first large-scale liquefied natural gas export facility.

It is expected to start operations in mid-2025, giving Western Canada’s natural gas drillers a new market for their product.

“In practical terms everyone’s aware that demand will increase dramatically in the coming year, thanks to LNG Canada . . . and as a result of that line of sight to increased demand, a lot of producers have been growing,” Belenkie said in an interview.

“And so we have this temporary period of time where there’s more gas than there is places to put it.”

In light of the current depressed prices, Advantage has started strategically curtailing its gas production by up to 130 million cubic feet per day, depending on what the spot market is doing.

Other companies, including giants like Canadian Natural Resources Ltd. and Tourmaline Oil Corp., have indicated they will delay gas production growth plans until conditions improve.

“We cut all our gas growth out of 2024, once we’d had that mild winter. We did that back in Q2, because this is not the right year to bring incremental molecules to AECO,” said Mike Rose, CEO of Tourmaline, which is Canada’s largest natural gas producer, in an interview this week.

“We moved all our gas growth out into ’25 and ’26.”

LNG Canada is expected to process up to 2 billion cubic feet (Bcf) of natural gas per day once it reaches full operations. That represents what will be a significant drawdown of the existing oversupply, Rose said, adding that is why he thinks the future for western Canadian natural gas producers is bright.

“That sink of 2 Bcf a day will logically take three-plus years to fill. And then if LNG Canada Phase 2 happens, then obviously that’s even more positive,” Rose said.

While Belenkie said he agrees LNG Canada will lift prices, he’s not as convinced as Rose that the benefits will be sustained for a long period of time.

“Our thinking is that markets will be healthy for six months, a year, 18 months — whatever it is — and then after that 18 months, because prices will be healthy, supply will grow and probably overshoot demand again,” he said, adding he’s frustrated that more companies haven’t done what Advantage has done and curtailed production in an effort to limit the oversupply in the market.

“Frankly, we’ve been very disappointed to see how few other producers have chosen to shut in with gas prices this low. . . you’re basically dumping gas at a loss,” Belenkie said.

Feit, the analyst for Enverus, said there’s no doubt LNG Canada’s opening will be a major milestone that will help to support natural gas pricing in Western Canada. He added there are other Canadian LNG projects in the works that would also provide a boost in the longer-term, such as LNG Canada’s proposed Phase 2, as well as potential increased demand from the proliferation of AI-related data centres and other power-hungry infrastructure.

But Feit added that producers need to be disciplined and allow the market to balance in the near-term, otherwise supply levels could overshoot LNG Canada’s capacity and periods of depressed pricing could reoccur.

“Obviously selling gas at pennies on the dollar is not a sustainable business model,” Feit said.

“But there’s an old industry saying that the cure for low gas prices is low gas prices. You know, eventually companies will have to curtail production, they will have to make adjustments.”

This report by The Canadian Press was first published Oct. 25, 2024.

Companies in this story: (TSX:TOU; TSX:AAV, TSX:CNQ)

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Corus Entertainment reports Q4 loss, signs amended debt deal with banks

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TORONTO – Corus Entertainment Inc. reported a fourth-quarter loss compared with a profit a year ago as its revenue fell 21 per cent.

The broadcaster says its net loss attributable to shareholders amounted to $25.7 million or 13 cents per diluted share for the quarter ended Aug. 31. The result compared with a profit attributable to shareholders of $50.4 million or 25 cents per diluted share in the same quarter last year.

Revenue for the quarter totalled $269.4 million, down from $338.8 million a year ago.

On an adjusted basis, Corus says it lost two cents per share for its latest quarter compared with an adjusted loss of four cents per share a year earlier.

The company also announced that it has signed an deal to amend and restate its existing syndicated, senior secured credit facilities with its bank group.

The restated credit facility was changed to reduce the total limit on the revolving facility to $150 million from $300 million and increase the maximum total debt to cash flow ratio required under the financial covenants.

This report by The Canadian Press was first published Oct. 25, 2024.

Companies in this story: (TSX:CJR.B)

The Canadian Press. All rights reserved.

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